We took advantage of the general market decline early in the year – particularly in Canada – and the exchange rate to buy stocks at bargain prices. Dollarama (Toronto: DOL) shares had fallen from a high of close to $94 to around $73 in early February when we bought the stock. Most of our clients are familiar with the “dollar plus” stores this company operates. With more than 900 stores across 10 provinces, it’s hard not to have noticed them. Financially, the valuation was higher than what we normally like to pay, but the company posts truly outstanding results in terms of organic growth alone, which is the opposite of growth through acquisitions. Dollarama has had annual earnings growth of 24% over the past five years and clearly intends to maintain this growth. The Rossy family is firmly committed to its shareholders, which was a decisive factor in our analysis.
As you already know, our primary criterion in selecting companies is one or more sustainable competitive advantages. Dollarama’s advantages are the strength of its brand and its distribution network. Most potential consumers believe that what they buy is cheaper at Dollarama. Management can gradually raise its prices without suffering any comparison effect. Customers will not change stores to “perhaps” pay a few pennies less for the same item and will probably not order these items online. This type of discount shopping seems to me to be a matter of proximity; from this standpoint, Dollarama has the best network in Canada.
Fanie pointed out to me that I’ve been talking to her about this company for at least four years. Nothing like my team to keep me humble… Be sure not to look at the chart!
This post has been excerpted from a June 2016 letter of the Robitaille Group at Desjardins Securities.
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